Friday, June 14, 2002 | 5:16 a.m.
WEEKEND EDITION: June 16, 2002
Nevada's ongoing debate over skyrocketing medical malpractice insurance costs involves long-standing arguments that have festered in this state for decades.
It has been widely reported that the current "crisis" began in December when the state's dominant medical malpractice insurer, St. Paul Companies, abruptly pulled out of the market. But in actuality this is the fourth time in 27 years that doctors, lawyers and insurers have butted heads on this issue in Nevada.
Much of the same finger-pointing displayed today on the issue of medical liability insurance led state lawmakers to make incremental reforms in 1975, 1985 and 1995. But the one thing physicians have never been able to convince lawmakers to approve, a tort reform law passed by California in 1975, remains their top priority despite prior legislative defeats.
Larry Matheis, executive director of the Nevada State Medical Association, said he believes doctors will be able to make a more convincing argument on tort reform this time because they are facing their deepest insurance dilemma since 1975. Doctors believe California's law would stabilize insurance rates if adopted in Nevada and keep doctors from leaving the state or prematurely retiring.
Matheis said that between April and early June, 22 Nevada physicians had either permanently or temporarily closed their practices because of rising insurance costs, 12 others were in the process of closing their offices, 11 had either retired or were on the verge of doing so, and 78 were considering one of those options.
"We did not adopt these reforms as we should have in 1975, 1985 or 1995 and now we're seeing the results," Matheis said. "The Legislature up to this point has taken as many small steps as possible to deal with the problems. But we haven't addressed the underlying problems, which are the increases in the amounts of awards and level of settlements."
Las Vegas attorney Jim Wadhams, a lobbyist for Nevada's insurance industry, said circumstances now are much different than in 1995, when the Legislature last spent considerable time on medical liability issues. Part of the new dynamics have to do with Nevada's rapid population growth, he said.
"Doctors weren't leaving the state in 1995 and we also had an active insurance industry," Wadhams said. "But now we have a lot more people who don't have health care, and insurance companies have left. Because of the changing circumstances, both houses of the Legislature, both parties and the governor will have to take a serious look at this."
But Reno attorney Bill Bradley, past president of the Nevada Trial Lawyers Association and one of its lobbyists, said doctors are merely bringing up the same failed arguments as they have in the past. He said the problem lies with the insurers, arguing that they paid $20 million to $30 million more in Nevada jury awards over the past five years than they would have had they merely settled with the plaintiffs.
"It's uncanny how it's the same headlines," Bradley said. "Every time there's a downturn in the economy there's a malpractice crisis. When there's a robust economy the insurers are so aggressive in their attempts to get premium dollars to make those investments in the stock market that they set aside their underwriting guidelines. Then when the economy turns sour they have a significant problem."
The medical malpractice insurance debate first struck Nevada in 1975 when insurers began pulling out of the state and taking their business elsewhere. The insurers complained that they were victims of increased litigation and couldn't make money in this state. Critics charged that the insurers had only themselves to blame because they weren't charging enough for premiums and weren't selective enough in the doctors they covered.
The upshot was that most Nevada physicians could no longer obtain liability insurance. "Doctors Leaving State Over Insurance" was the headline of a Las Vegas Sun story published on July 24, 1975. The state reacted that year by creating its own insurance company, the Nevada Medical Liability Insurance Association, to provide coverage to doctors. Shortly thereafter, the association became a private company owned by the doctors it covered and was renamed the Nevada Medical Liability Insurance Co.
Nevada lawmakers instituted their next reform in 1985 by creating what is now known as the Medical Dental Legal Screening Panel. The state had experimented with prior screening panels but doctors and lawyers considered them failures.
The intent of the 1985 version was to form a volunteer panel of doctors and lawyers who, serving on a rotating basis, would attempt to weed out frivolous malpractice claims before they went to court. The panel also streamlined the screening process by making the hearings less like trials than they were in the past.
The panel was created in part because the number of malpractice claims and the dollar amount of settlements against Nevada physicians had doubled between 1981 and 1985. Insurance rates also nearly doubled during that four-year period. At the time the panel was created, insurance companies argued that they were paying $1.60 in claims for every $1 collected from doctors through premiums.
When surgeons and other physicians who perform high-risk medical procedures began experiencing a new round of insurance rate hikes in the early 1990s they once again approached the state Legislature for more change.
Robert Byrd, then president of the Nevada Medical Liability Insurance Co., told the Las Vegas Sun in 1994 that "doctor bashing and greed" led to a 61 percent increase in claims filed against Nevada physicians over the previous two years.
The physicians wanted the Legislature in 1995 to approve a $250,000 cap on non-economic damages such as for pain and suffering as well as a sliding scale of contingency fees to which attorneys would be limited depending on the size of a damage award. Both provisions are key elements of California's tort reform law.
But the Legislature gutted those provisions from Assembly Bill 520 and instead adopted a watered-down version of tort reform. About the only concessions to the doctors were provisions that require judges to deduct from jury awards any money the plaintiff has already received for the injury from other sources, such as insurers, and grant immunity from malpractice claims to medical professionals who had direct or indirect contact with the injured patient but were not involved in any gross negligence.
Lawmakers also approved a $75,000 study of the insurance industry. When all was said and done, it had been a big legislative victory for lawyers.
"The doctors and lawyers both turned on the insurance agencies," Wadhams said. "The attorneys were saying that the insurance companies were gouging and they were successful in persuading the Legislature."
The physicians who owned the Nevada Medical Liability Insurance Co. sold it to St. Paul in 1995 because they could no longer obtain coverage from larger companies that are in the business of providing backup liability insurance for smaller insurers, Matheis said. Liability insurance rates for doctors also crept upward again in 1996.
The Nevada State Medical Association responded to the concern over rising premiums by striking a deal in January 1997 with St. Paul. The agreement allowed the Minnesota company to take over coverage for about 800 doctors by dropping their insurance rates 15 percent. Eventually, St. Paul cornered 60 percent of Nevada's medical liability insurance market.
But last December, St. Paul announced it was abandoning its position as the nation's second largest writer of medical liability coverage. The company cited heavy losses from the aftermath of the Sept. 11 terrorist attacks along with the fact it had to add hundreds of millions of dollars to its medical liability reserves, which cut into profits. The company wound up with $1 billion in net losses last year.
"Since 1995, nothing has changed except that a huge predatory insurer (St.Paul) was encouraged to come in and depress prices in order to guarantee market share," Bradley said. "A lot of eggs in Nevada were placed in one basket."
When St. Paul left Nevada, the company also left 60 percent of Nevada's physicians without insurance. At least three other companies have since bolted the state. Those insurers that were left behind doubled or tripled their rates in many cases, forcing Gov. Kenny Guinn to form the second state-run insurance company in 27 years to help bail doctors out of their quagmire.
Ultimately, it will be left to Guinn and the Legislature to consider long-range solutions. But within that process, the biggest stumbling block doctors could face in their quest for major tort reform is the Democratic-controlled Assembly Judiciary Committee, which has blocked prior attempts at caps on non-economic damages.
Assemblyman Bernie Anderson, D-Sparks, chairman of the committee, and Assemblyman Mark Manendo, D-Las Vegas, vice chairman, both said they still aren't sold on caps. Both also said that if caps were seriously considered, they would have to be at a level considerably higher than the $250,000 in California's law, given the inflation that has occurred since that law was enacted 27 years ago.
But Anderson said the doctors may have a stronger case this time because he agrees circumstances have changed over the past seven years.
"What caused this crisis was St. Paul's decision to leave the market," Anderson said. "I blame this entirely on the insurance companies because they have problems with losses nationally and Nevada is not the only state experiencing these rate increases. The insurance companies took a big hit because of Sept. 11 and the change in the stock market.
"The doctors' argument is a little stronger today than in 1995 because they're in a price shock kind of situation. If the doctors and lawyers can find common ground, I will put that at the top of my agenda."
Manendo said the issue is also high on his radar screen even though he hasn't received much constituent feedback on medical malpractice insurance costs.
"We want to protect our doctors and make sure our patients are taken care of," he said. "Something needs to be done about the insurance aspect. But I want to know what happens to the insurance company if they make a poor management decision and don't settle a claim."
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